The Bank Denied my Loan Modification and Foreclosed
Nov. 21, 2019
A brief history of Mortgage Banks and Loan Modification Abuse
A mortgage is a contract between a homeowner and a bank. The agreement is usually a loan of money secured by the house--the homeowner borrows money from the bank and agrees to make payments, and in return, the homeowner promises the bank that if the homeowner doesn't make payments, the bank can take the house.
Mortgage contracts, like all contracts, sometimes need to be amended a little. Maybe the terms of the contract don't make sense for the parties anymore. Maybe one party has breached the agreement but the other party wants to give it a second chance. For mortgage loans, one form of amendment is called a Loan Modification.
Loan modifications have been around for as long as mortgage loans. In their simplest terms, a loan modification is usually just a new change or update to the mortgage contract. They usually include a change to the payment amount due by the homeowner in exchange for a new set of promises--maybe a little longer term of payment, or a change in interest rate, etc.
HAMP and HARP Loan Modifications
After mortgage banks blew up our economy, the Federal Government created a new set of programs intended to entice mortgage banks to offer new loan modifications instead of foreclosing. The reasons were simple--our communities and our economy do better when people get to stay in their houses, and they do worse when banks run everyone out of their homes so the banks can sell the house at a cutthroat rate in a foreclosure auction while simultaneously ruining peoples' lives.
The Home Affordable Mortgage Program (HAMP) and Home Affordable Refinance Program (HARP) provided incentives to mortgage banks to help homeowners stay in their homes and change the terms of payments. For example, under HAMP, the banks are typically required to figure out a homeowners' finances and assets, compare them to the loan terms, and, if the homeowners qualifies, reduce the monthly payment on the loan to no more than 30% of a homeowners' monthly gross income. Put simply, the government created a program to encourage banks to help homeowners reduce their payments so they could afford to live in their houses. Everyone was supposed to win--homeowners got to stay in their houses and got payments they could afford, the banks got incentives and payments from the government and got to receive homeowners' monthly (amended or modified) payments, and our communities weren't inundated with foreclosures and homeless families.
But the program doesn't always work as intended.
Banks are notorious for being terrible at paperwork. One would think that an organization like a trillion-dollar major bank would be good at keeping track of documents submitted by homeowners, but they simply aren't.
A common issue we see is homeowners who had a successful loan modification with one bank, but the bank sold the loan to another. The new bank refuses to honor the previous bank's loan modification. That's illegal.
And some banks have actively attempted to prevent homeowners from modifying loans--primarily because they make a ton of money by forcing homes into foreclosure and then charging unlawful or exhorbitant fees to "service" the mortgage while it's in foreclosure.
And some banks have been sued (successfully) for lying to consumers about the loan modification process. Major Banks have been caught red handed telling their companies to lie to homeowners about what they have to do to qualify for a loan modification.
One practice that consumer lawyers exposed was banks telling homeowners (incorrectly) that the homeowner must be in default to qualify for a loan modification, even though the US Treasury guidelines for the programs explicitly said they do not.
The result was predictable. Homeowners would call because they were facing some financial hardship, but they were still current on their payments and hadn't fallen behind. The banks would lie to the homeowners, telling them that the only way they can qualify for a loan modification is if the homeowner purposefully missed three mortgage payments (putting them in default of the mortgage's terms). Once the homeowners did as the banks instructed, the banks would file for foreclosure and take the house, which they were (technically) allowed to do because the homeowner had missed the payments.
It did not matter to the banks (and, sometimes, the courts) that the homeowners had only missed the payments becuase the banks lied about the HAMP program told them to miss the payments to qualify.
The Bank Denied My Loan Modification--now what?
The loan modification process can be complicated and difficult. Most homeowners are denied a few times before they are finally approved. Often, the denials are legitimate--because the process is confusing, many homeowners don't do it correctly.
But sometimes, the Banks purposefully trick homeowners into doing the paperwork incorrectly. Other times, the homeowners do the paperwork correctly, but the banks claim they have lost documents or that the homeowner didn't send in everything required, again resulting in an unfair denial.
But sometimes, the banks look for any excuse whatsoever to illegally deny a loan modification.
Our firm has actually gotten one bank to admit, under oath in litigation, that it would deny a loan modification and foreclose on a home if the homeowner signed the paperwork in blue ink instead of black ink.
If you've been denied a loan modification for illegal reasons, you have rights.
A foreclosure by a bank after a wrongful denial of a loan modification can lead to a counterclaim lawsuit against the bank. You read that right--if the bank sues you illegaly for foreclosure when you were trying to modify the loan or actually had modified the loan, you may be able to sue the bank back.
Results may include stopping the foreclosure and getting substantial settlement or judgment monies in your pocket.
If you think the bank has lied to you about your loan modification, wrongfully denied your loan modification, or has foreclosed on you even though you had a loan modification in place, contact us. We are New Mexico wrongful foreclosure attorneys, and we will evaluate your claim for free and tell you whether you may have a case. If we accept your case, we'll represent you on a contingency fee basis, meaning we don't get paid until we sue the bank and win a claim and obtain a settlement or judgment on your behalf.